American consumers are feeling slightly less terrible about the economy, which in the current climate counts as good news. The University of Michigan’s Index of Consumer Sentiment rose to 48.9 in early June, up from 44.8 in May, a 9% monthly increase driven largely by the relief of falling gasoline prices.

To be clear, 48.9 is still a historically grim number. A year ago, the same index sat at 60.7.

Gasoline prices did the heavy lifting

The catalyst here is straightforward: gas got cheaper. National average gasoline prices peaked near $4.60 per gallon in May, then declined to somewhere between $4.09 and $4.15 by mid-June. That’s a roughly 10% drop at the pump in a matter of weeks.

This dynamic hit lower-income households hardest during May’s downturn. The Michigan survey found that 57% of respondents in May cited high prices as a primary driver of their negative sentiment. Fuel costs were the biggest culprit.

Inflation expectations are cooling, slowly

One-year inflation expectations fell to 4.6% from 4.8%, while long-term expectations dropped more significantly, to 3.4% from 3.9%.

Still, 3.4% is well above the Fed’s 2% target. And 4.6% one-year expectations signal that consumers still anticipate meaningful near-term price increases.

Context: climbing out of a very deep hole

May’s 44.8 reading wasn’t just low. It was a record low for the Michigan survey, which has been tracking consumer sentiment since the 1960s. The June rebound to 48.9 puts the index back in roughly the same territory it occupied earlier this year, but still far below levels that economists would consider healthy. For reference, the index typically hovers between 70 and 100 during periods of economic expansion.

The Conference Board’s separate Consumer Confidence Index showed a smaller decline during the same period. Michigan’s survey leans more heavily on how people feel about their personal finances, while the Conference Board’s version focuses more on labor market conditions.

What this means for investors and crypto markets

Consumer sentiment matters to markets because spending drives roughly 70% of US economic activity. Sectors most sensitive to discretionary spending, think retail, travel, entertainment, stand to benefit if the trend continues. Lower fuel costs effectively function as a stimulus payment distributed across every household with a car.

The cooling inflation expectations are arguably more important for crypto than the headline sentiment number. If long-term inflation expectations continue declining toward the Fed’s comfort zone, it increases the probability of eventual monetary easing. Rate cuts, or even the credible expectation of rate cuts, have historically been bullish for both equities and digital assets.